With the holidays on our heels and a new year just around the corner, many organizations are taking the time to revisit their compensation strategy. It’s no secret that it’s more important than ever to position your company as desirable in today’s market – which is currently experiencing the worst talent gap in 10 years – without throwing your entire benefits budget off the deep end, of course. But just how do you address that in the current landscape? Here are a few tips as you take a pulse on your company’s current strategy:
Ask, “How does our compensation system compare to others in the industry?”
One sure-fire way to tell if you’re falling short on the compensation front is to evaluate what others around you are doing. What’s the market rate for each position in your company? Are you following that standard consistently throughout the organization? This evaluation needs to be made on pay structure for both future employees (what you’re offering them to remain competitive in the job market) and your current workforce (how their current salary compares to others in the same role).
Here’s a breakdown of salary growth from 2007-2017, based on industry:
- Information Technology – 31.6%
- Professional – 31.1%
- Clerical – 30.3%
- Technicians & Skilled Craft – 30.3%
- Middle Management – 30.1%
- Top Management Positions – 29.9%
- Field, Shop & Services – 28.9%
- Health Care – 27.4%
- Supervisory – 25.6%
- Sales – 24%
Assess how raises and bonuses are handled.
While compensation plays an important role in attracting great talent, it can also significantly impact employee retention. Do your employees feel valued based on pay? If not, they will be easily picked up by recruiters offering more. Pay increase budgets overall have increased by 3% for the fourth year in a row, according to Keating Advisors – but is that model effective for your workforce? Are you awarding raises and bonuses based on performance, tenure, etc.? It may not be enough to give a blanket pay increase.
Many companies are moving toward a performance-based system, which awards pay increases based on merit. Within companies that made decisions about pay based on performance in 2017, 22% of employees were considered “high performers,” 70% were “middle performers,” and 5% were “low performers.” Here is the breakdown of their salary growth based on that classification:
- High performers – 4%
- Middle performers – 3%
- Low performers – 0%
With a merit-based system for raises and bonuses, employees will not only feel valued based on their performance, they will also be incentivized to perform at a higher level in the future.
Even with an impressive pay structure, your compensation plan won’t take you far if you’re poorly communicating your overall advancement roadmap to your employees (current and future). With clear guidelines on performance expectations and what your workforce can do to put themselves in position for a pay increase, you will not only be outfitting your employees with the information they need to be successful, you’re engaging them in the process. That, in turn, creates both happier and more productive employees.
While compensation is just one piece of the puzzle that positions your company to attract and keep great talent, it’s an invaluable one. By regularly evaluating how your compensation plan represents your company and its values, you will ensure that puzzle piece (and your workforce) stays in place. Need help? Check out Smart HR’s HR Audit & Compliance and Recruiting and Talent Acquisition offerings.